Increased investment in inventory is believed to be the major reason behind the upswing in China’s economic growth, which started in the second half of last year and is expected to end by the middle of this year, according to He Fan, economics professor at Peking University, interviewed by
Hong Kong Commercial Daily.
China’s attempts last year to reduce redundant industrial capacity have led the prices of coal, steel and other raw materials to rise, followed by a rapid growth in the profits of upstream companies in these industries, according to He. As these prices are expected to increase still further, downstream companies are likely to replenish stocks, the scholar explained.
But the growth of inventory investment is believed to be unsustainable. Consumption, export and government investment are also not believed to be strong enough to fuel economic growth. Private investment is the only sector currently to be relied on, He said, but it’s not expected to rise very soon.
Profit growth has mainly been enjoyed by large and medium-sized State-owned companies located in the upstream of these industries. It’s likely to erode the profits of downstream manufacturers, the scholar noted. Many companies are under greater pressure, he said.
Nor are those companies enjoying a profit boost ready to increase investment, He noted. Many of these companies have suffered huge losses in previous years, with coal companies a notable example. Their immediate action would be to clear deficits rather than increase investment, he said.
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